AICPA asks IRS to skip some penalties on estates and non-grantor trusts

• Key Insight: Discover how a new tax limitation is complicating estimated tax calculations for fiduciaries.
• Expert Quote: “A fiduciary who underpays faces potential penalty exposure and claims from income beneficiaries.” — Cheri Freeh, AICPA Tax Executive Committee chair

The American Institute of CPAs is urging the Internal Revenue Service to waive certain estimated tax penalties for estates and non-grantor trusts for tax year 2026 because taxpayers and practitioners still lack guidance on how the new limitation on itemized deductions applies to such taxpayers.

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A new limitation that was part of the One Big Beautiful Bill Act took effect for tax years starting after Dec. 31, 2025, the AICPA noted. However, questions remain about how the provision will interact with the tax rules that specifically govern estates and trusts, making it hard for fiduciaries and tax practitioners to accurately calculate estimated tax payments.

“Taxpayers and practitioners are working in good faith to accurately calculate their estimated tax obligations under the new Section 68 limitation, but key questions about how it applies to estates and trusts remains open,” said Daniel Hauffe, senior manager for tax policy and advocacy with the AICPA, in a statement Thursday. “The IRS has provided relief in the past when significant tax law changes created uncertainty around estimated tax obligations. We believe similar relief would offer a practical bridge until that guidance is issued.”

In the letter, the AICPA asked the IRS to waive penalties for underpayment of estimated income tax by estates and non-grantor trusts for 2026 to the extent that the underpayment results from application of the new itemized deduction limitation to several deductions applicable to estates and trusts, including the income distribution deduction, charitable deduction and certain administration expenses. The AICPA has previously requested guidance from both the Treasury and the IRS on these issues.

The impending Jan. 15, 2027, deadline adds extra urgency to the need for relief, according to the AICPA, as the fiduciaries for calendar-year estates and trusts have already made three estimated tax payments for 2026 without receiving clear guidance from the IRS or the Treasury on how the new rules apply. 

The IRS has previously provided estimated tax penalty relief following significant changes in tax law when taxpayers did not have sufficient guidance to accurately determine their obligations, the AICPA noted. Some of the examples cited in the letter include relief following changes under the Tax Reform Act of 1986, the Tax Cuts and Jobs Act, and the more recent corporate alternative minimum tax rules.

“Approximately 3.2 million fiduciary income tax returns (Form 1041) are filed annually, and a substantial majority of these returns will be affected by the section 68 uncertainty,” wrote AICPA Tax Executive Committee chair Cheri Freeh in the letter to a Treasury official who is involved with estate and gift taxes. “Because estates and trusts reach the highest income tax rate at just $16,000, nearly all non-grantor trusts and estates with meaningful income are impacted. Fiduciaries are subject to duties of prudence and loyalty to beneficiaries. A fiduciary who overpays estimated taxes (taking the most conservative approach to Section 68) may face claims from remainder beneficiaries that trust corpus was unnecessarily depleted. However, a fiduciary who underpays faces potential penalty exposure and claims from income beneficiaries.”

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